Between the trend lines
The big news this week is the $1.9 trillion coronavirus relief bill signed by President Biden that directs cash payments to millions of Americans, expands the child tax credit, provides financial assistance to renters, and funds vaccinations. Critics say it translates to great politics but might represent risky economics that could trigger inflation. Supporters say it’s a show of force that will help troubled sectors of the economy rebound. In either case, it is far too soon to tell what kind of actual impact it will have on the economy, says AIA’s Chief Economist Kermit Baker, Hon. AIA. What’s certain now within architecture, he says, is that employment at architecture firms has stabilized recently and is only 4.5 percent below the pre-pandemic peak of 199,000 positions 13 months ago. While the stimulus package aims to spark general economic recovery, Baker points to specific signs within architecture that signal a recovery has already begun. In the following interview, he offers context to these numbers and AIA’s monthly Architecture Billings Index (ABI).
What does the latest economic news mean for architects?
The big story this week for me is employment in architecture, which is related to a question we asked firms recently about when they think they will fully recover from the downturn.
In terms of employment and the monthly jobs report, we have a good sense of what’s happening with architecture firms in terms of payrolls. Not just architecture positions, but everyone on payroll. We have numbers through December, and things bottomed out in the summer last year—July being the lowest—and we’ve seen healthy growth since then. More recently, we’ve seen stability off that growth over the last few months. We’ve gained back half of what we lost since July, too, so there’s some evidence that firms have weathered this downturn. I’m not saying blue skies are ahead, necessarily, but firms have weathered things and have scaled back appropriately. Remember, during the Great Recession after 2008 and 2009, we lost 30 percent of positions, and we’re not even close to that now.
How are architecture firms weathering the downturn so far?
Now, revenue-wise, when will firms return to pre-COVID conditions? Here’s what we found out. Almost a quarter of respondents, or 23 percent to be exact, said they’re already back to pre-pandemic levels. Another 12 percent say they’ll be back by the first half of this year. On the other end, 29 percent of firms think they’ll be back to full force by the second half of this year, and 36 percent say it’ll be 2022 or perhaps even never for them.
What does that mean? It means that one third of firms think they’ll be back by mid-year. But, if these are representative at all, it means half of architecture firms will be above pre-pandemic levels and half will be below before 2021 is out. That matches my working definition of a “recovery” generally, so I am optimistic firms can continue to weather a couple more rocky months until we hit summer. It’s looking more and more like we won’t hit a second dip.
What is the outlook for economic recovery?
In the economy, there’s a lot of talk about the K-shaped recovery, and that’s really true—some industries are struggling and others are having near-record levels of profitability. In construction, and since very early in this recession, the residential market has done very well. On the other hand, hotels, retail, and offices have been really bad. The institutional sector of schools and hospitals has been right in between those two extremes. Most architecture firms—not all, but most—are very focused on a niche or a specialty and that means they’re captive to broader trends. If you do single-family homes, you’re booked up for the next year. If you do hotels in midtown of a major city, you’re waiting for the next project. That will take some time to even out. As we will discover, too, this pandemic might even transform certain sectors.
Yes, the stimulus package is the big story, but it’s hard to speculate what will happen. Generally, there are two sides: This new package will generate a huge amount of debt and spark inflation, and people will stick the cash in savings and not stimulate the economy. The other side is that cash is not a bad idea in theory, and neither is putting money in savings. In terms of specifics, there was a little supplemental Paycheck Protection Program (PPP) in the most recent relief bill, so that might incentivize some architecture firms to keep certain folks on that they might not be able to, otherwise. For those reasons, and lots of others, we need to wait and see to find out what the macroeconomic effects will be. But one thing is certain: we are in recovery mode.